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Provincial budget includes pension framework

By Craig Leroux, Senior Communications Officer

With the provincial legislature back in session, the Government of Ontario has reintroduced its 2014 budget, including provisions that set the stage for allowing single-employer pension plans (SEPP), like the Queen’s Pension Plan (QPP), to transfer to a jointly sponsored pension plan (JSPP). This would allow plans like the QPP to take advantage of a JSPP’s existing exemption from solvency funding.

Caroline Davis, Vice-Principal, Finance & Administration

“When a pension deficit is calculated on a solvency basis, the assumption is that the employer closes its doors and the plan is wound up immediately,” says Caroline Davis. “Since there is little danger that Queen’s will close, it makes sense to fund the plan based on the less onerous going concern basis, or the assumption that the employer and the plan continue to operate. Transferring to a JSPP that already has a solvency exemption is one option for obtaining a permanent solvency exemption.”

As of Aug. 31, 2013 the Queen’s Pension Plan (QPP) had a deficit on a going concern basis of $164 million and $292 million on a solvency basis. Queen’s is currently paying more than $14 million in annual special going concern payments, but has been operating with a temporary exemption from the solvency test. That exemption will expire when the next valuation is filed.

“Our next valuation will be completed with an effective date of Aug. 31, 2014. Until that’s completed we won’t know exactly what the size of the pension plan’s deficit is,” says Vice-Principal Davis. “Based on the 2013 numbers the university would have to make an additional $22 million in special deficit payments, beginning in 2015, but the actual numbers could be lower based on solid investment returns over the past year.”

While the government recently created an option for universities to defer solvency payments for a further three years, that deferral would require the entire solvency deficit to be funded over the following seven years, instead of 10 if no deferral is taken.

“It’s a little like not paying your mortgage. It has the potential for even larger payments compressed into a shorter period of time.” says Vice-Principal Davis. “The best option for the university and pension plan members is to find a way to obtain a permanent solvency exemption.”

The 2014 provincial budget, if passed, would give the government the regulatory authority to prescribe the conditions under which a transfer to a JSPP can happen. It would enable one of the options the university is considering: merging the QPP with the Colleges of Applied Arts and Technology (CAAT) pension plan, the solvency-exempt JSPP for the province’s college sector. Queen’s is also participating in a process with the Council of Ontario Universities and the Ontario Confederation of University Faculty Associations that is examining the creation of a new JSPP for the university sector.

The Gazette recently interviewed Vice-Principal Davis about the solvency deficit. More information is available on the pension plan’s webpage.